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IRS Issues Updated Withholding Tables; Taxpayers Could See Changes by February

(Parker Tax Publishing January 2018)

The IRS issued updated income-tax withholding tables for 2018 which reflect changes made by the Tax Cuts and Jobs Act of 2017. According to the IRS, the new withholding tables are designed to work with the Forms W-4, Employee's Withholding Allowance Certificate, which workers have already filed with their employers, and employers should begin using the 2018 withholding tables as soon as possible, but no later than February 15, 2018. IR-2018-05; Notice 1036.

On January 11, the IRS issued new income tax withholding tables to reflect the changes in tax rates and tax brackets, increased standard deduction, and the repeal of personal exemptions that were included in the Tax Cuts and Jobs Act of 2017 (TCJA) that was signed into law on December 22. The withholding guidance is for employers to make changes to their payroll systems and is designed to work with existing W-4s that employees have on file.

According to the IRS, employees should begin to see withholding changes in their paychecks in February. However, the exact timing depends on when their employer makes the change and how often they are paid. The IRS noted that it typically takes payroll providers and employers about a month to update withholding changes on their systems. While employees do not need to take any action to get the new withholding rates, they should review their withholding to make sure that it is accurate. The IRS said it will be releasing a new calculator and Form W-4 soon, to help employees ensure withholding is accurate.

The IRS noted that employees will not need to fill out a new Form W-4, Employee's Withholding Allowance Certificate, because the new withholding tables are designed to minimize taxpayer burden as much as possible and will work with the Forms W-4 that workers have already filed with their employers to claim withholding allowances. The IRS said it is working on revising the Form W-4 to more fully reflect the new law and provide taxpayers information to determine whether they need to adjust their withholding. The IRS said it will soon be releasing a revised Publication 15, (Circular E), Employer's Tax Guide, and related publications.

In addition, the IRS said it is working on revising the Form W-4 to more fully reflect the new law and to provide taxpayers information to determine whether they need to adjust their withholdings. The IRS is also revising the withholding tax calculator on to help employees who wish to update their withholdings in response to the new law or other changes in their personal circumstances in 2018. The IRS anticipates this calculator should be available by the end of February.

The IRS cautioned that some people have more complicated tax situations and face the possibility of being under-withheld on their taxes with the changes to the withholding tables. For example, people who itemize their deductions, couples with multiple jobs or individuals with more than one job a year should review their tax situations. The IRS is encouraging taxpayers - particularly those with more than one income in their household - to check their withholding.

The IRS also advised that, in 2019, it anticipates making further changes involving withholding and will work with the business and payroll community to encourage workers to file new Forms W-4 in 2019 and share information on changes in the new tax law that impact withholding.

For a discussion of Form W-4, see Parker Tax ¶212,120.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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